How to quickly and effectively build credit?

[OldUser 6,668]

6 hours ago, JeanneAdil said:

but more than 5 hurts your credit

Not true, I'm in upper 700s - lower 800s (depending on bureau) with 10+ credit cards. The key is to never carry a balance and pay it off every month completely in timely manner.

 

Also, for emergencies one should have an emergency fund. Cards are simply "proxies" for earning rewards, having purchase protection, fraud protection and extended warranty in this scenario.

Edited January 22, 2023 by OldUser

[Rebuilt 9]

Ok, so I believe that this is something I can help with. I will share what has been working for me, so far.

 

Start with getting a credit card on your name. You will get very little credit at the beginning, but do not worry, patience is key here. And of course, paying your debt in time.

 

The very first one I got was from JCPenney, with a credit line of $500.00. I used it just to buy a pair of boots. Paid the whole balance in time, 35 bucks. 

 

You should use it for small things, even if it is a pack of cigarettes, or occasional grocery shopping. Try to do small things, so you can pay the whole balance at once in order to not accrue any interest on balance owed.

 

Eventually, ask for a credit raise. Say, from $500.00, you might be able to raise it to $1,000.00. Again, patience. Do not despair.

 

In the meantime, it is important that you understand the three main perks of different credit cards. I am sharing this because I do not know if you are aware of it. I surely wasn't.

 

You have mainly 3 perks:

 

- Cash back: pretty self explanatory, you can get anything from 1% to 5% cash rewards on purchases, depending on the category. For example, one of my cards gives me a 5% cash back in gas, which is awesome! Anytime I fill up my tank, say, 50 bucks, I get 2.5 bucks back into my account. It seems little, but believe me, it adds up.

 

- Travel points: again, self explanatory, they give you X amount of points for every dollar spent. In my opinion, this perk is almost useless, but if you travel frequently it may be useful for you.

 

- Balance transfer: this perk has proven to be a life saver for me, and it was something completely unheard of in my country of origin. What this perk does is, it allows you to transfer a balance from another credit card to the balance transfer card for a very low price. In other words, you can pay the debt you have in another credit card for a relatively small fee, and not accrue any interest on it. Basically it buys you time to pay your debt without accruing interest on the principal owed (except for the small fee).

 

With this, it's time to do some financial engineering.

 

Say, you need to buy a computer that costs you $2,000.00. Well, the way you do it is this: you apply for a proper credit card. Most credit cards will give you also more perks during a promotional period, for example, 18 months at 0% interest. Also, many of them would give you X amount of money if you spend Y amount during the first 3 months (for example). So, you know you have to expend 2 grand in the computer anyway. You find a promotional offer for a cash back card that gives you, say, 2% cash back, lets you pay your debt in 18 months without interest, and on top of that gives you a rebate of $200 if you spend $1,500 in purchases during the first 3 months of account opening. Well, there you go, that's the card you want. Apply for it, hoping to get approved, and buy yourself that computer.

 

Now, the purchased is charged to your new credit card, and you'll have 18 months to pay for it and $200 discount on said computer. And here comes the most important part of building credit: NEVER, and I repeat, NEVER be late on your monthly payments. And of course, NEVER, and I repeat, NEVER pay only the minimum amount. The faster you can pay your debt, the better off you are. If you can pay $200 a month, great; if you can pay $300 a month, even better. Make this a priority.

 

Say, you get into a rough patch. In any case, make sure you pay at least the minimum amount required every month. But for whatever reason you still can't pay the whole amount in those 18 months you had in your promotional period. Having foreseen this, it is time to apply for a new credit card. This is where a balance transfer card will come in handy.

 

Again, most balance transfer cards will offer you the possibility of "buying" your debt from another card for a small fee (usually 5% of the amount), and pay it off in a promotional period without accruing interest. So basically you are buying time with it and avoiding an outrageous 25%-30% interest.

 

VERY IMPORTANT:

 

- Of course, be mindful with your spending, and, like we say in my country, never stretch your feet longer than your blanket.

 

- Always try to consolidate your debt. Try to avoid at all costs having many different cards with many balances, where you have to pay many amounts in many different dates. It is truly overwhelming. Try to keep your debts to 1 to 3 different credit cards at most.

 

- Always pay in time, and try to get rid of the debt as quick as you can.

 

- Always look for different cards in the market to take advantage of the perks during the promotional period. After that, just use them for small expenses in order to keep them open and not having your line of credit reduced due to lack of use.

 

- Ask the credit card companies to raise your credit limit any time you can. This has no impact on your credit report, and will reduce your debt/credit line ratio. Try to keep this ratio as low as you possibly can.

 

- Rinse and repeat.

 

I hope this will be helpful to you. I don't have a penny on my name, but I have managed to get a credit line of about 70K in about 5 years. I can obtain a loan of about 20K for a car at the snap of my fingers (I just don't want to, lol). But I could if I wanted. I don't have idea about a personal loan, but thank God I don't need it either. My credit rating is currently quite over the 700s.

 

Best of luck. You got this